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. Last Updated: 07/27/2016

Coddling Iraq a $40Bln Gamble

U.S. President George W. Bush may have plenty of reasons why Russia, his new ally in the war on terrorism, should stop cozying up to Iraq, one of the states he sees as part of an "axis of evil."

But Leonid Fedun has 20 billion reasons why Russia should not.

Fedun is vice president for development at LUKoil. He oversees a 23-year contract to develop Iraq's West Qurna oil field -- 667 million tons of crude, half a million barrels per day and one of the world's largest oil deposits. It is potentially, he says, a $20 billion moneymaker. But only potentially.

Thanks to UN sanctions on Iraq, LUKoil has not pumped a drop from West Qurna since it won drilling rights in 1997.

With the United States now talking openly of ousting Iraqi President Saddam Hussein from power, Fedun wonders whether West Qurna will ever pay off.

"If the Americans start military operations against Iraq," he said, "we may lose a contract, and American oil companies will come in our place. No one has ever said the opposite."

For two nations that have jointly pledged to stem the spread of terror, weapons and the despots who would use them, agreeing on what to do about Saddam is the first serious test of their wobbly new friendship, with pragmatism and suspicion rife on both sides.

"I'm very critical of Russian supporters of Saddam," said Andrei Kozyrev, former President Boris Yeltsin's first foreign minister and one of the United States' more consistent supporters in Moscow. "But speaking about Washington, it's a very, very awkward, very simplistic and inflexible approach they take toward Iraq. There's a lot of room for improvement."

Some U.S. experts are no less confounded. "Do I want to curry favor with the Iraqi regime?" said Eugene Rumer, a State Department policy strategist in the Clinton administration who is now a Russia scholar at the National Defense University in Washington. "Or do I want to maintain a solid relationship with the United States and, to a lesser degree, with Europe? The answer to that ought to be fairly obvious."

Even in the wake of Sept. 11, Russia has clung to its position as Iraq's chief protector against new UN sanctions or a new U.S. attack. The Kremlin also wants an end to British and U.S. patrols of the no-flight zones imposed after the Gulf War to prevent Saddam's jets from bombing Iraq's Kurdish and Shiite minorities.

Russia argues that the United Nations never specifically approved such zones. Rumer argues -- and some Russians agree -- that the Kremlin has let Russia's best interests in Iraq take a back seat to the agendas of a powerful oil industry and a bureaucracy still nursing Cold War resentments.

For its part, however, the United States has done almost nothing to allay Russia's very real fear: that if Saddam goes, Russia's multibillion-dollar stake and its influence in Iraq will go with him. Baghdad still owes Russia at least $8 billion from the days of the Cold War when, as a client state, Iraq outfitted its military with armor bought on Soviet credit. Then there are billions of dollars in oil contracts with Russian companies, and billions of dollars more trading that could be done with a pro-Russian government in Baghdad.

The U.S. silence on Russia's actual and potential stake in Iraq only solidifies the conviction of some Russians that the White House cannot be trusted to play fairly, new friendship or not. So far, Saddam has played deftly on the United States' rage and Russia's fears. He gave Russia by far the largest share of Iraq's contracts last year -- $1.3 billion -- under the UN oil-for-food program, which allows Iraq to sell oil to buy supplies to help Iraqi civilians.

In late September, days after President Vladimir Putin cast Russia's lot in with the West's war on terrorism and the White House began expressing its concern about Iraq, Baghdad announced plans to award Russian companies another $40 billion in contracts as soon as UN sanctions were lifted.

Iraq also has courted Russian politicians with trips and other inducements -- Vladimir Zhirinovsky, the outspoken nationalist, has made several visits.

"It's safe to say that there is a strong pro-Iraqi lobby in Russia," said Alexei Mitrofanov, a State Duma deputy from Zhirinovsky's Liberal Democratic Party. "Just as there is a strong pro-Taiwan lobby in the United States."

The week before last, as U.S. strategists pondered the prospects for Saddam's demise, Iraq's deputy prime minister, Tariq Aziz, was in Moscow. He returned to Moscow last week after talks in China, but left without meeting any senior officials. Foreign Minister Igor Ivanov said during Aziz's earlier visit that Russia and Iraq saw eye to eye on questions of extremism and terrorism and that the U.S.-backed sanctions against Iraq were counterproductive and should be lifted. More pointedly, he said Russia solidly opposed "spreading or applying the international anti-terror operation to any arbitrarily chosen state, including Iraq."

The Kremlin offers some diplomatic arguments for its policy: that the United States has overstepped the UN mandate on Iraq and that it is unproven that Iraq is developing weapons of mass destruction or supporting terrorism. Russia pointedly does not say that Saddam is a friend, because he is not. "There are no emotional bonds between the Russians and the Iraqis," said Dmitry Trenin, a top expert on Russian foreign policy at the Carnegie Endowment for International Peace in Moscow. "It's not Yugoslavia or Serbia. You have to talk about interests -- very specific, very easily identifiable interests."

Those interests are largely in places like West Qurna. Soviet wildcatters and engineers had probed the West Qurna deposit earlier, sinking 300 wells in 1979 alone in preparation for pumping oil. Iraq's war with Iran halted work in the 1980s, and Saddam's invasion of Kuwait kept it at a standstill in the 1990s. Iraq revived the project in the mid-1990s as tensions over the presence of UN weapons inspectors inside Iraq were peaking.

The new production-sharing agreement gave LUKoil rights to more than half of all oil pumped there during the life of the contract. Iraq got another 25 percent. But the Kremlin got a stake, too: Two Russian government agencies gained another quarter of the oil rights as part of a scheme to repay some of Iraq's Soviet debt. Russia was explicit that it would not pump oil until sanctions were lifted. But Iraq was not without leverage: In November 2000, Saddam threatened to void the West Qurna deal for nonperformance.

That December, the Kremlin sent a letter to Baghdad proposing an end to the no-flight zones and a deal in the United Nations to lift economic sanctions against Iraq in exchange for the return of weapons monitors. The Kremlin continues to pursue that deal, and although Iraq rejected it again last week, Aziz's visits here and in Beijing almost certainly center on reaching some UN accord that would stave off U.S. military action.

No one professes to know where Putin really stands regarding Saddam. Among experts here and in the United States, there is a growing sense that the Kremlin's control of its Iraq policy is being taken over by Russian industry and the Soviet holdovers, in both the bureaucracy and parliament, who still see Iraq as part of a grand game to thwart U.S. influence. Equally, it is not clear whether the United States cares about Russia's stake in Iraq. Experts on both sides say a savvy Kremlin almost surely would grab any U.S. compromise that offered reassurances on Russia's economic interests and unpaid debt in exchange for Moscow's help in ratcheting up the pressure on Saddam.

Even Fedun of LUKoil, holding a $20 billion contract he cannot execute, suggests that his firm might welcome U.S. oil companies in a venture to spread the risks of the West Qurna project -- if only the sanctions would end.

"I don't see why one can't make sure that those interests are taken good care of," said Trenin of the Carnegie Endowment. "I think this calls for a trade-off."